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Saying Goodbye to the Hotel California…

Not everything about my recent move from Florida to Texas was tough. I didn’t enjoy the packing and cleaning, or the unpacking and more cleaning. But there was one thing that made me smile.

I kicked my storage unit to the curb.

Five years ago we decided to downsize. There was no way to put 4,000 square feet of furniture into 2,100 square feet of space. We made tough decisions on what to keep and what to give away or sell, but in the end we had a few items that had no home in the new house, but we couldn’t part with.

It all came down to a loveseat.

My in-laws had refinished an antique loveseat and given it to my wife when she first went out on her own. It’s a nice piece. But there was no logical place for it in the new house, and (obviously) we couldn’t get rid of it. So I bit the bullet and rented a storage unit.

“It’s fine,” I told myself. “We’re adding on to the house, so it’s short term.”

But the guy who worked at the storage place new better. When I signed up and mentioned that I’d be there about six months, he smiled.

“Everyone says that,” he told me.

We never added on. And we never emptied the unit. What did happen was $100 per month for exactly five years.

That antique loveseat cost me $6,000. I don’t think I could sell the thing for more than $200-$300, but as I tell my wife, the piece is priceless because it’s important to her. I didn’t get this far along in my marriage without learning a few things.

Storage is like the Hotel California. You can check out, but you can never leave. If you have a unit – or two – chances are you’ve had them for years, and there’s no end in sight.

We sit at a strange crossroads when it comes to stuff and storage. The Boomers are the richest generation in history, and have collected a bunch of things. But they’re getting older…

As they move to one-story houses and 55-and-over communities, they’ll have to make choices. Do they chuck everything that doesn’t fit in the new place, or stick it in storage so they can pass it down? I’m betting on storage. It puts off the hard decisions and the pain is minimal.

So the explosion in self-storage units, from just the old Public Storage (NYSE: PSA) locations and mom-and-pop stores to fast-growing companies like Extra Space Storage (NYSE: EXR), will most likely continue in the years ahead. (EXR’s latest quarterly data reported a 14.6% year-over-year increase in revenue, and the real estate investment trust’s annual dividend yield is 4.03%.)

The industry plays on the emotions of Americans that get pretty attached to stuff and can carry the added expense.

For investors that like the steady income generated by such companies, this is good news. But as my personal example shows, over time the personal expense of owning a storage unit adds up.

Recently, a friend in Vegas (thank you, Ken!) showed me another way to attack this problem. He, too, had rented storage space, and was paying a pretty penny every month just to keep stuff. As his monthly expense climbed over $1,000, he decided he’d had enough.

He searched his neighborhood, found a small home not too far from his house, and bought it. After slight modifications, he’s turned it into a glorified storage unit, although it comes complete with a kitchen and bathrooms.

A photo from my friend Ken’s “storage house.”

He even carved out some space for his wife to have an office, ridding himself of another monthly expense!

Taking this approach involves a few variables.

My friend bought the small home for cash, so he doesn’t have to pay debt service, although he still must cough up for association fees, taxes, maintenance, and upkeep. But he participates in the capital fluctuation on the home.

Essentially, he got rid of a monthly expense (storage) and turned it into a useful investment (real estate). It’s as if he owns a rental in a nice neighborhood and is leasing it to himself. Brilliant!

Not everyone can do this, of course, but just think of the possibilities.

In addition to using the property for storage and a small office, it could also serve as guest quarters, particularly for adult children that come home for either a brief or extended stay.

With my last college kid home for the summer, it crossed my mind that if I had such a unit nearby, I wouldn’t wake up to the front door opening at 1 a.m., find half of my groceries gone, or have to play Tetris with the cars in the driveway. And when out-of-town guests visit, it’d be an automatic hotel.

Before you start paying closer attention to “For Sale” signs on your daily commute, consider that real estate prices are quite high, while incomes remain stagnant. Now is not the best time to jump into the game if you can’t stay for the long haul.

(Perhaps a strategy like Charles’ Peak Income service would be more feasible for you to generate consistent monthly income, which could help pay your storage bill.)

But if you can create your own storage unit and own it for the foreseeable future, then this could be a great option.

Eventually, the Millennials will buy homes in droves, wanting to put down roots for their young families and chase the American Dream, which should push prices higher in the late 2020s.

That might just give you enough time to figure out what to do with all that stuff.

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Rodney works closely with Harry to study the purchasing power of people as they move through predictable stages of life, how that purchasing power drives our economy and how readers can use this information to invest successfully in the markets.
Each month Rodney Johnson works with Harry Dent to uncover the next profitable investment based on demographic and cyclical trends in their flagship newsletter Boom & Bust.
Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s.
Along with Boom & Bust, Rodney is also the executive editor of our new service, Fortune Hunter and our Dent Cornerstone Portfolio.